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The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry

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  • Ila Alam
  • Robin Sickles

Abstract

This paper analyzes the association between two firm performance measures: stock market returns and relative technical efficiency. Using linear programming techniques (Data Envelopment Analysis and Free Disposal Hull), technical efficiencies are calculated for a panel of eleven US airlines observed quarterly from 1970–1990. A relationship, between efficiency news in a quarter and stock market performance in the following two months, is found. A risky arbitrage portfolio strategy, of buying firms with the most positive efficiency news and short-selling those with the worst news during this time frame, results in zero beta risk yet yields annual returns of 17% and 18% for the two methodologies. Copyright Kluwer Academic Publishers 1998

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  • Ila Alam & Robin Sickles, 1998. "The Relationship Between Stock Market Returns and Technical Efficiency Innovations: Evidence from the US Airline Industry," Journal of Productivity Analysis, Springer, vol. 9(1), pages 35-51, January.
    • Handle: RePEc:kap:jproda:v:9:y:1998:i:1:p:35-51
    DOI: 10.1023/A:1018368313411
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